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Katsiavrias v. Cendant Corp.

2009 WL 872172 (U.S. Dist. Ct. D. N.J. 2009) (Unpublished)

AGREEMENTS; RELOCATION; GOOD FAITH AND FAIR DEALINGS — A party has no need to disclose the existence of other third party negotiations to another party with whom it is negotiating and the duty to negotiate in good faith does not encompass an automatic duty to approve a final deal and negotiate exclusively with one party unless there is an actual agreement to deal exclusively with that party.

A woman submitted a franchise application to obtain the exclusive sub-franchise rights to use the franchisor’s brand name in Greece. The franchisor sent a letter of intent to the woman, outlining basic sub-franchise agreement terms. The woman signed a letter of intent and sent it to the franchisor together with an application fee. Upon receipt of the executed letter of intent and application fee, the franchisor sent the woman a draft agreement. Both the letter of intent and draft franchise agreement set out several conditions needed to be satisfied before the deal would be final. One week after the franchisor received the woman’s letter of intent, it informed her it was also negotiating with another party for a sub-franchise agreement that included Greece. The woman never negotiated or discussed the draft franchise agreement with the franchisor after receiving that information. The franchisor signed a franchise agreement with the other party and, shortly thereafter, returned the application fee to the woman. The woman sued the franchisor in United States District Court.

The Court granted the franchisor’s summary judgment motion to dismiss all claims brought by the woman. First, the Court held that there was no breach of contract because an enforceable contract never existed even if the parties had a tentative agreement on some terms. According to the Court, the absence of agreement on essential terms demonstrated that no contract existed. Second, the Court ruled that the woman had not established a claim for common law fraud, holding that the franchisor had no duty to disclose third party negotiations to the woman when it was negotiating at arms’ length with her. Further, it noted that there was no evidence that the franchisor made any material misrepresentations of fact. Therefore, the Court concluded that the franchisor did not have a fiduciary relationship with the woman. Third, the Court rejected the woman’s claim that the franchisor interfered with her prospective economic advantage. In order to prove such a claim, the woman needed to establish that the franchisor’s actions were malicious and that the harm was inflicted intentionally and without justification. The claim must also be directed against defendants who are not parties to the relationship. The woman conceded that the evidence did not support such a claim. Fourth, the Court believed that the franchisor did not violate its obligation to negotiate in good faith since the duty did not encompass an automatic duty to approve the final deal or negotiate exclusively with her. Fifth, the Court held that while the New Jersey Consumer Fraud Act protects against fraud in the purchase of consumer goods or services it does not cover fraud in the purchase of a franchise. Sixth, the Court stated that the woman failed to establish a viable claim of promissory estoppel because the franchisor never expressly agreed to exclusively negotiate with her. Finally, the Court ruled that the woman had no right to specific performance as there was no contract between the parties. Moreover, it felt that the grant of such a remedy would be a harsh and oppressive exercise of the Court’s discretion in this case.


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